Munger_Disciple

Actually Buffett (a.k.a. the ) used an overvalued book (due to Coke) and an overvalued stock price (> 2X book) to buy GenRe in 1998 in an all stock transaction. In other words, he exchanged a significant portion of an over-valued stock portfolio of Berkshire for an undervalued bond portfolio of GenRe in a tax efficient manner w/o incurring any capital gains taxes.

46% at the end of 1997.

Berkshire shareholders can hedge Apple position by buying deep out of money puts if it is really concerning. But really, it is not like Coke position at its peak, much smaller as % of book value. And Apple while overpriced currently has better long term prospects than KO had in 1998.

Didn't Abel just replace the Pacificorp CEO? Looks like the payout for wildfires there will be pretty big. So even supposedly safe & boring utility business has more risk than I thought prior to this incident.

Do you really think Warren is going to blow one of the most important decisions of his life? I don't think so. Also you have a very competent owner oriented board as a check on new CEO.

You are right that acquisitions will get harder. I think they still have opportunity for additional acquisitions in the energy space in addition to internal growth opportunities. If the interest rates stay higher for longer, opportunities will likely get better. In the mean time they are getting paid quite well to hold cash. And they can always buy back more stock if nothing else happens and stock doesn't get too expensive. I am sure you are right that Constellation Software has more opportunities but how can one pay 35X 2024 earnings? Is there any room for error at that type of valuation?

Good posts @CassiusKing1 and @longterminvestor. I am quite optimistic about Berkshire going forward. It won't be able to hit the ball out of the park due to its size, but it will be a very safe, satisfactory investment one could keep for a long time. Energy business is almost certain to grow and it is pretty much in Greg's wheelhouse. BNSF isn't going anywhere for 100+ years. Yes, super cat business has more competition but I would argue not much talent. Ajit is super patient and will do great in super cat & reinsurance (I am almost certain he made boatloads of money for Berkshire in 2023 through his FL super cat coverage). Moreover he expanded the insurance business into more bread and butter commercial lines, similar to GEICO on the consumer side and both of these would do fine. And all the niche, specialized industrial operations will do fine. And so will special consumer businesses like See's, NFM, etc. On the stock investing side, I am happy with Ted & Todd. They both seem like great people first and foremost and very talented. I am fine if they just match the market. They add enormous value by being a good sounding board for Greg on acquisitions. They added enormous value already by convincing Warren of Apple's virtues which led to the massive stake in Apple. So the future will be pretty decent post Warren. It is really a credit to Buffett that he & Charlie built a company that will thrive for a long time after them. And I would second the great Charlie Munger's advice during the 2023 annual meeting: "Just hold the damn stock."

If you read history, almost everyone on earth was invaded and taken advantage of if you go back far enough (Romans invaded Briton, Vikings raped and pillaged everyone & everything in sight, Genghis Khan's expeditions etc.). At some point, we just need to move on & get on with life. Our views are colored by our own experiences. The worst thing about Nehru/I Gandhi regimes was that even when they were presented with irrefutable evidence of their mis-guided policies, they refused to change their views. They were ideologues and didn't worry about the misery brought on by their policies. And the Indian people paid dearly. LKY pushed Indira Gandhi strongly to adopt market oriented policies several times to no avail. BTW Moghuls themselves invaded and pillaged India before Akbar brought peace as you know.

Congrats & welcome to the club!

Friedman hit the nail on its head. You can just plot the economic trajectory of the Asian tigers like Singapore, HK, Thailand etc vs India during the timeframe 1947-1990. Nehru was a known socialist since his Oxford days. Thanks to Nehru and Indira Gandhi, India screwed itself by adopting socialism.

I am a naturalized US citizen of Indian descent. I came to the US as a graduate student to study engineering in '87 and became a permanent resident in '92 and a proud US citizen in 2000. When I left India, there were almost no technical jobs (I got a job in Delhi selling mainframe computers to govt customers but wanted to pursue a technical path) as the country was brought to near bankruptcy by 40 years of socialist policies that caused huge poverty and statism in the country. Nehru & Gandhi's (Indira) model for economy was based on that of Soviet Union with top down 5 year plans while killing private incentives for profit through nationalization. That changed in 1991 as PM Rao opened up the economy, encouraged private sector and lowered tariffs. The current PM Modi has continued and expanded on these reforms. That's what led to much higher growth rates of the Indian economy in recent times and lifted hundreds of millions out of poverty. I for one blame the socialist policies of Indian leaders in the first 40 years of independence for causing untold misery to hundreds of millions of Indians than the British who left India long long time ago.

Good point. PE is acquiring everything in the private space so opportunity set is almost non-existent there for Berkshire.

The real issue was that Berkshire made a deal with people of questionable character to put it mildly. Berkshire would have bought of 100% of Pilot at once but 62% of it wasn't available for sale initially. So in effect Berkshire either had to partner with the prior owners (it did) or walk away.

My prediction is that we will see a lot fewer purchases of large "family owned" businesses by Berkshire going forward. With hindsight, Buffett clearly misjudged the character of sellers in this case and wants to put this awful episode it behind him and save Abel time and focus so that he & Abel can focus on more important things.

I am reluctant to extend this debate, so I will just say I disagree with your interpretation of intrinsic value of FFH. Anyhow FFH is trading at book, not far above it. Furthermore, the goal of any buyback is not to be accretive to book value but to intrinsic value which will happen if buyback price < IV.

This makes no sense. The buyback is accretive to the intrinsic value & earnings as long as the share price at which you are buying back shares is below their intrinsic value. Your post only makes sense if you think FFH intrinsic value is below its book value where it is roughly trading currently.

Makes no difference to a US tax payer (with respect to Canadian withholding tax on dividends) where he bought the stock.

I think that applies only to tax deferred accounts? I am pretty sure for taxable US accounts, there is a Canadian withholding tax.

We are not talking about some random company here, but FFH. I agree that some companies should pay dividends (for example Tobacco) instead of blowing it on some stupid acquisition. I would not trust a tobacco company with even buybacks because there is a significant probability of terminal value being 0. With respect to FFH, the tax situation for US residents is actually worse because the dividend taxes are withheld (at 25% rate I think) by the Canadian government before paying the rest to US residents regardless of their US tax bracket. And you can't even offset the pre-tax dividend against your investment expenses (for example margin interest). We can just agree to disagree with respect to the wisdom of dividend at FFH.

1. Why not buyback? Are you worried that FFH will blow both reinvestment and buybacks? Then you should sell all your FFH shares instead of having an orgasm about dividends. 2. That was just a guess. 3a. In the US, the highest dividend tax rate is 20%+3.8% Obamacare surcharge = 23.8% at the federal level. Then you have to add state taxes which vary from 0% to 13.3% depending on where you live. 3b. Stop being an a$$ and stop treating others you disagree with disrespectfully & get back to rational and logical arguments to make your case.

I think the dividend is a poor capital allocation decision by Prem. I would have preferred (1) buyback or (2) no dividend, retain the capital inside the business on which they can hopefully earn decent returns and have it compound inside the company without any taxes. Dividend forces all shareholders (whether they have a need or not) to either spend or reinvest only 70-75% (lesser in case of shareholders in higher income brackets in states like CA or NY) of the cash proceeds after paying the tax due. It is an inefficient way to return capital to shareholders. Those shareholders who need cash can always sell a portion of their holding to meet the need in a more tax efficient way because one pays less in capital gains taxes than dividends which are equivalent to zero cost basis capital gains. Let us do some math: FFH has roughly 23 million shares outstanding which implies $345mm dividend payment before taxes. Let us assume 75% of shareholders own it in taxable accounts and dividend tax rate is 25%. This means that FFH shareholders are paying $65mm in taxes cumulatively to the govt out of $345mm for almost no reason. If Prem need cash for his living expenses, I would respectfully suggest one of two far better alternatives available to him: (1) Buyback $345 mm worth of stock and he can sell his pro-rata shares, thus retaining the same % economic ownership in FFH. Given the relatively tiny numbers involved, his voting % would hardly change. Other shareholders who need cash can do the same as Prem. Alternatively, (2) FFH board can pay Prem (as an example) $10mm yearly salary and the company retains remaining capital of $335mm inside the company and let it compound. Shareholders come out $55mm ahead in this case using the assumptions stated before and they don't need to worry about reinvesting the tax-inefficiently distributed capital. I realize nothing will likely change, but math & logic clearly show the sub-optimality of this capital allocation decision.

I think the best biography of Buffett is by Roger Lowenstein even though Warren didn't cooperate with the author. I was disappointed with Snowball even though Buffett gave unprecedented access to its author Alice Schroeder and spent countless hours with her.

https://buffett.cnbc.com/warren-buffett-archive/ It already exists. Enjoy!

Hopefully we don't have to worry about that for a long, long time.

Well, no one can replace Warren including Greg. But I think he will do fine especially with Ajit as his consiglieri. It won't be a decision by committee. Greg will seek advice from the three especially Ajit I think on big matters but at the end of the day, he will make the final decision. GEICO was a mess before Ajit took over all the insurance operations in 2018 and he put Todd in charge as CEO and is working with him to fix GEICO. I think Warren was blind-sided by his love for GEICO and ignored the festering problems until Ajit took over. This fiasco actually shows us that in important ways Ajit (and likely Greg) are better managers than Warren himself. So there is hope post-Buffett.